College Savings: The Basics of Saving for College

This post is from staff writer Sierra Black. Sierra writes about frugality, sustainable living, and getting her kids to eat kale at Childwild.com.

Got kids? If so, you’re probably hoping to send them to college. And you know it won’t be cheap. College costs are rising faster than inflation, and have been for decades.

But that doesn’t mean you can’t afford a good education for your kids, even if you have a modest salary or other substantial expenses. I’m not going to pretend college isn’t expensive: Full scholarships are less common in real life than they are in the movies. You’ll probably have to spend a pretty penny for the privilege of attending your son or daughter’s college graduation.

College graduates typically also have more flexibility in the careers they choose, which comes with side benefits like more job satisfaction. Not only does a college degree make you richer, it can give you a better shot at happiness, too.

Note: This doesn’t mean you can’t be successful without a college degree, or that people with a college degree are guaranteed a bright future. Not at all. It just means that those with college degrees are more likely to earn more than those without.

Those are some strong incentives to help our kids get a great college education. But how can you pay for it? By saving slowly and steadily, of course.

Save early and often
Like any savings goal, the most important part of saving for college is simply to start doing it, and commit to it regularly. The younger your kids are when you start building their educational nest eggs, the more funds you’ll have available to help them achieve their dreams.

There are plenty of tricks to get the most bang out of your college savings bucks. Not all college savings accounts are cut from the same cloth, and it’s worth taking a little time to look into your options before you invest.

First, be realistic about what you can contribute. Don’t try to save your child’s entire college costs before her 18th birthday. Save what you can. Aim for saving one third to one half of your child’s expected education costs. The rest you can pay for when your child attends school, through your current income, grants and loans, and your child’s own contributions.

Of course, saving more money is always better. But saving between a third and a half of the total cost should be enough to get you through.

Put yourself first
Also be sure to bolster your own assets. Contribute as much as you can to your home equity and retirement savings.

Most experts agree that you should be fully funding your retirement and paying down your mortgage before you start saving for college. Provide for your kids by guaranteeing a solid financial future for yourself first. College students generally have ready access to low-interest loans. This isn’t true for retirees. If you don’t want to become a financial burden to your grown kids after you retire, you’ll attend to your own future before saving for theirs. Trent at the Simple Dollar does a great job of breaking down the reasons for valuing retirement savings over college savings.

This strategy isn’t just good financial sense for you. Home equity and retirement funds are special classes of protected savings. Most schools don’t include these assets at all in their financial aid calculations. A few elite private schools do, but they won’t expect you to dip into them as heavily as your cash savings accounts.

The 411 on 529s
Speaking of savings accounts, when you’re ready to start a college fund, you’ll want to choose one carefully. Keep the savings in your own name. Parental assets are weighted less heavily than student assets by financial aid offices. That means your savings impact the aid your child qualifies for less than the same savings in your child’s name.

A state-run 529 plan is a good bet. These tax-sheltered funds allow deposits to grow tax-free, and all withdrawals spent on educational expenses are tax-free as well. A word of warning: If you withdraw the money for something else, you’ll pay a hefty fee, akin to an early withdrawal from a retirement account.

Not all 529 plans are the same. Administrative costs for these plans range from 0.2% to over 2%. That’s a huge range; you’ll want to choose carefully. Additionally, some plans adjust their mix of investments as your child ages, from growth-oriented ones to more conservative ones that protect your nest egg.

Every state offers a 529 plan, but you’re not limited to the one your state runs. Nearly all states allow out-of-state investors. Your state may offer special incentives like matching grants or discounts at state schools, but given the range of expenses and options in these plans, it’s worth your while to look around

Final thoughts
If you’re counting on financial aid grants and subsidized loans to make up a critical part of paying for college, you’ll want to maximize your financial aid qualifications. That means putting money into your mortgage, paying off debt, fully funding your retirement, and then saving for college.

Conveniently, these are all good strategies for general personal finance. With the exception of the restrictions on a 529 plan, they’ll stand you in good stead whether your kid gets into Harvard or decides to go find himself on a walkabout in the Australian outback.

If beyond those basics, you can save a substantial nest egg for your son or daughter’s education, you’ll be in great shape when the time comes. A financial advisor can help you determine, based on your child’s age and your income, whether the tax-sheltered aspect of a 529 plan makes it worth the restrictions and risks.

Don’t let the intricacies of college savings be a deterrent to getting started. You child’s education will be a major life expense for your family. The sooner you begin preparing for it, the better of you and your kids will be.

This is a really simplistic view of going to college. The 1$ million increased earnings figure has be discredited for a long time.

I would also like to point out the unethical practices of student loans, and that Obama’s loan reform does NOT help students. Obama’s “reform” cut the middle man out, but still offers no consumer protections to the students, and the government benefits even more from higher tuition costs since student loans are never discharged in bankruptcy courts.

Yes I have a college degree, but I chose carefully to avoid taking out student loans. Community College and then a state school with costs below the 50th percentile and in a state where I could earn enough in the off season to pay for school. This meant moving to Alaska (from my hometown in Michigan).

College is still a good choice, but you have to be very careful and be sure to pursue a degree course where there are actual opportunities at the end of line.

We’re hoping to save our child’s entire expenses for undergrad at a private school (he could go to our flagship public for free, but I teach some of their best graduates, and they were poorly educated, so that is out unless we move states). We’ve got it on an automatic monthly deduction to the Utah 529. I checked the other day and we’ve managed to magically save up 18K since he was born without even noticing.

One important thing on the 529s… we’ve gained some over the same time that the 529 we fund for a cousin has lost. The difference: We chose index funds from a cheap state plan. He chose actively managed funds from an expensive state plan. Those fees will eat your savings alive over time.

Is there a financial comparison to people with degrees versus people with a trade? It seems to me that people with a trade make much more and pay less for their education. If you are making a broad comparison and have people with a master’s or a phd in on the equation, it can change the averagre’s drasticaly. Likewise, if you include people with simply a highschool degree in with people who have a trade.

One very important area not mentioned in this post: if you have more than one child, fund the oldest child’s account first.

This was the advice of the flat-fee financial planner MrP and I work with. If that oldest child does not use all the money, you can roll it to the next child, and so on. If you fund plans for each child equally but the youngest does not go to college, then you end up taking a hit on withdrawals of the unused funds.

I agree with Holly – don’t just evenly save for your kids for college. We still contribute to all 3, but I save more for child 1 than the other two. That doesn’t mean the other two are out of luck, but I definitely do not want money left over when my 3rd child goes to school. (I am about 99.99 percent sure that wouldn’t happen anyway, but just in case…)

It is sad because academic scholarships are incredibly hard to come by. My daughter is striving to get a ‘full ride’ and I don’t want to break her heart by saving it is nearly impossible. (This is her own goal, it definitely did not come from us, although it would be fantastic if it happened.) Michigan did away with the ‘Promise’ scholarship that was based on good ACT/SAT scores too.

Many kids are going to have to accept that student loans are going to be a part of their adult lives unfortunately.

I am wondering if it might be better to save more in your YOUNGEST child’s account. If you can use the money for any of them by rolling it- could you benefit from having the oldest with less money looking better for financial aide?
I don’t know anything about 529′s except I contribute to my grandson’s yearly. It is just a thought.

Students should be encouraged to attend school close to home (if possible)so they can continue to live at home while they attend classes. This will make a huge difference in the cost of their education. I know that living away from home can be a wonderful experience, but facing huge student loan debt isn’t so wonderful! I would rather my kids be free from debt upon graduation than to have to then be ‘boomerang kids’ coming back home to live because they are struggling financially.

I do not want to get into any sort of political debate because that would stress me out right now, but I’d like to go on the record saying that I strongly disagree with #1 Meghan. Student loan reforms will help students. Are they perfect? No. But very little in real life is perfect. They’re better than what was in place before. Incremental change is better than none.

So we’re maxing out on 401k and Roth IRA contributions right now and putting an extra $70/month towards our mortgage. We are saving absolutely nothing for our 3 year old’s college expenses because money is tight. So by the article above, it sounds like we are on the right track regarding future college expenses. It doesn’t always feel like that though.

Merit based scholarships are not as uncommon as some people seem to think (at least they were not five years ago when I graduated from university). My parents paid a couple thousand dollars for my first year of school, but my next four years I got enough scholarships that I was paid to go to school. My sister and several of my friends were all in the same situation. None of us had a full ride from one scholarship, but lots of smaller ones that added up and we all attended a state university.
It is important to look hard for scholarships and to keep looking throughout your entire time in school. Of course the degree being pursued has a very large impact as well. There are generally a lot more scholarships and less competition for engineering majors than there are for business majors.

SavingForCollege.com is a good resource if you are looking for more info. Once a year I use the calculator on the site to see how I am doing. It’s worth keeping an eye on, as costs go up rather rapidly, even at state schools, as budgets are tight.

One additional thing I found when I compared 529 plans. My state plan did not have the lowest expenses, but the tax deduction more than makes up for the difference.

I plan on telling my children that they are on their own for college and any graduate school that they want to attend. I want them to take the responsibility for their own decisions and be OK with receiving no help whatsoever. I will also tell them that if they try to return home after 18 for more than 3 months, I will charge them rent.

In reality, once they get to school, I will help them to the extent that I can and deem reasonable, but I don’t want that expectation of help ingrained. I’m not kidding about charging them rent if they come back home. If you are old enough to vote or join the army, you are old enough to be independent and take care of yourself (outside exigent circumstances, such as a debilitating health condition).

I find the helicopter parents and the boomerang children that never grow up to be correlated. Cut the umbilical cord already. Let them make their own mistakes and then let them fix them on their own. At some point, you have to realize that they are not a reflection of you and you are not a reflection of them – people must live their own lives.

That’s harsh. Not to asian standards, though. This was what my mom told me and my sisters. She said she won’t have money to support all of us through college, she prayed we study hard and get by with scholarships, etc. If not she hoped that we work and become useful people. For my mom and her siblings, they had to sacrifice education to start working to support their parents and the rest of the family. In the end I think my sisters and I did pretty good. Four out of five of us got free rides, three in engineering school, one in accounting. The fifth took out a loan for med school. Too competitive for scholarship.

Look into whether or not your high school is affiliated with a college in your city/town. Some schools offer college credit for classes taken in the senior year which may cut a quarter or two off the time you are actually paying for college. As for trade schools vs the traditional university, some Americans have got to stop believing that trade schools are only for those that are ‘too dumb’ to get into regular college. My man is a ‘manual labor’ guy but can hold his own in a discussion about great literature etc. And when your car breaks down do you care if the mechanic knows Shakespeare or that he knows where the spark plug goes ?

I disagree with putting off saving for your child’s college before your mortgage is paid off & your retirement is “safe”. My father saved towards his retirement, my college, and paid extra on his mortgage all at the same time (and he did NOT make a lot of money & was the only income earner). Even if he could only put $10 one week towards my college fund, he did it. I am EXTREMELY grateful to him…I got measley help from scholarships & federal aid (I only took grants) but was fortunate enough to never have to take out a loan because of what my father saved for me (in my favor, I went to an in-state, large 4 year college and lived in the dorms 4 years).

I would also NOT save money in a 529 plan; what if your child decides to choose a career path that does not warrant college? There are other types of investments you can save in that are not bound by having to use the money towards education. Not everyone has to go to college. However, I would URGE everyone who is reading this & has kids to save SOMEthing (anything!) towards their child’s future endeavors (college, trade school, etc). I really feel that not saving for your child is doing them a HUGE disservice. Remember: a teen right out of high school has next to ZERO earning power, so saying that they’re “on their own” for college is starting them out in debt before they even have a chance to breathe. I have had numerous college friends who had to drop out of school because the financial pressures are too much. Do you really want that kind of pressure to be your “contribution” to your child’s future education?

I’m on the same page as Jenessa. My BFF got a full ride for four years (graduated 2 years ago), and I got enough grants to pay most of my way. Yet, we both ended up with student loans. Why? She changed majors and had to take a fifth year. She graduated with three degrees, but none of them can get you a job so she works at a bank. I spent my grants on ridiculous extras and took loans just because I could.

My point is that it wasn’t that funding wasn’t available, its that at 18 years old we made bad money decisions to the tune of tens of thousands of dollars. I read somewhere that the part of your brain that can process the long term consequences of actions isn’t fully developed until age 25, and I believe it. We ask students to make decision that will heavily impact their financial future when they literally aren’t capable of fully comprehending the gravity of those decisions yet.

I am a fan of KMJ’s response.
My parents said “we’re gonna contribute “X” (very small) amount. I was sort of scared into seeing that my situation was very real. I was expected to go to college, and knew I would have to figure a lot out on my own as far as how to budget and what I could and could not afford.
I joined ROTC and became an officer. Got a full state tuition “waiver” for doing so. I went to the best public school in the state and selected a major where I would be able to get a decent job after 4 years, as I had planned to only serve in the reserves.
Husband joined the National Guard at 17. He also was an RA. He MADE money because of all the benefits as a result of his choices.
Sometimes making choices that aren’t always easy (working during college) but we were both able to get great educations, and live on or around campus and live INDEPENDENTLY – as 30-somethings…we are FAR ahead of our peers because were were not helicoptered children.

We have been contributing $200/month for my 5 yo daughter’s education since she was born. We contribute to the Utah 529 plan (most states give you tax breaks for contributions to 529 plans, even if it’s not your own state’s plan). And, although our public high school is not great, you can do your junior and senior years of high school at 2 nearby universities for free, leaving us with only 2 years to pay for. We live in Pittsburgh, which has a number of world-class universities, so I’m going to encourage her to live at home for those last 2 years of college to save on expenses.

At the age of 40 I just made the last payment on my student loans, and I don’t want her to be in the same position. Having said that, my education was worth much more than I paid for it, both in terms of monetary worth and intellectual worth. I just want to make sure she doesn’t end up with the loans I did.

KMJ
Does Becky have the answer? Your child needs to serve in the military to get an education? Don’t count on the GI Bill- it is a mess!
I am not sure you understand that your children are saddled with the idea that aide is tied to YOUR salary. You can say that they are independent at 18- but the schools say 24 (unless they marry).
Heck, you cannot rent a car until you are 25 and an apartment (in most cities) require either a co- signature or 2 months rent to get in the door. I hope you have started them on a very big piggy bank of working now- so they will not starve later.
You may call it being a helicopter parent. Most of us call it taking care of our own.

I’m 39 and still paying my student loans and working on paying down debt and saving for retirement, haven’t managed to save much for my kids yet.
My parents *were* going to pay for college but didn’t manage for any number of disastrous financial reasons. They were also super annoying about where I went and what I did for college (and I wanted to go to less expensive schools and get more useful degrees).
So my goal (though I’m not sure how to achieve it) is to save SOME money SOMEWHERE for my kids so if they want to go to college, they have some money for that, but if they want to go to plumbing school or cooking school or whatever, they have money for THAT. But… how do you make your savings flexible without having penalties for money saved when it comes to financial aid?

This idea that paying for your children’s education creates an unnatural dependence of the children on the parents or that it encourages them to come back and live at home is hooey. My parents paid for college expenses for myself and my brother, as did my in-laws for my husband and his siblings. Everyone is now a full-functioning adult, with the added bonus of not being saddled with loans. I lived at home for 3 months after college and paid rent to my mother, my brother didn’t return home at all.

If anyone needs to take out a loan for my children’s college, it will be my husband and me– and I’m glad to do it, and consider it part of the cost of raising children. Graduate school, of course, is a different matter.

Having said that, I find this article to be pretty unhelpful with assessing the choices for 529′s. So they’re all different and have different fees… okay? No kidding. No discussion about the pro’s/con’s of tuition plans vs. savings account plans? Any insights into what states have low fees or have been getting higher returns?

Having said that, any commenters here have a 529 they are happy with? My 4 month-old daughter (and her future siblings) thank you.

Thanks for the idea of putting more money into the first sibling… makes good sense.

I am wondering about what #6 Janette said, about funding the YOUNGEST child’s fund over the oldest child’s for financial aid reasons. Does anyone have any info about this?

Our oldest son is a sophomore at a state university, and our youngest is now a junior in high school. The oldest fund has enough for almost 2 semesters tuition and room/board, the youngest has only about $2500 in it. We throw what feels like tons of $$ each month at either the oldest 529 or a money market account (because the fed. tax break for tuition requires you use non-529 funds for at least $4000 of the tuition), and only $250/month at the youngest. Hard to know what the best thing to do is.

Good article, Sierra. I would add that saving for college, while a great idea, should not be equated with the expectation of college. That is, let your kid(s) know you are saving but that the choice of college is up to them – and that ultimately their behavior as students will determine whether they have that choice.

And then make sure that they understand the difference between a life with higher education (whether academic or a trade) and a life without.

And then make sure that you have a culture of learning in your house. If you have no books, your kids probably won’t read. If they don’t read, they aren’t going to have good reading comprehension. If they don’t have good reading comprehension, they aren’t going to do very well in school.

TV and the internet have their place in providing educational material, but nothing beats the ability to read and understand single-topic books.

So my first child is about to be born in a month and I would like to get at least deposit down on saving stat. I don’t really like the idea of starting a 529 right now b/c I really want to move out of state in the next 18 years(preferably much sooner), want my child to have freedom where to choose, etc., so what are my other options to do something now while I can afford to make a lump deposit? Old school savings bond? A boring UGMA or UTMA account? Anybody have any ideas?

Wilson;
A good place to start is http://www.savingforcollege.com/. There are lots of resources there to learn about 529 plans and other ways of funding college. I noticed you said you didn’t want to start a 529 plan now because you may want to move to another state. Please note that for most states and plans, it doesn’t matter where you live or where your child goes to school. I live in PA, invest in the Utah plan, and my daughter will be able to use the funds in any state.

Morningstar also issues comparisons and ratings on the diffent plans, which you can find on their web site.

In any case, I would stay away from the 529 plans that are sold by brokers and invest in one directly through the plan’s web site. The ones you pay a commission on don’t earn any more than the ones you pay no commission for.

Emily: keep in mind that you can use your Roth IRA for higher ed expenses if needed. There’s some debate on whether its better than 529′s or other dedicated plans, but I have chosen to use it for several reasons:
- withdrawals on all CONTRIBUTIONS are tax- and penalty-free. If you are maxing out two Roth IRA’s right now that will allow you to contribute $180k in 18 years.
- if do you have to dip into EARNINGS, the 10% early withdrawal penalty is waived if used for higher ed (but you do still have to pay income taxes on the earnings)
- if your genius children get a full-ride or decide that college isn’t their thing, you aren’t stuck with a large college savings amount that you will have to pay a 10% penalty plus income taxes on. It just continues growing towards your retirement.

I’m only 20 but thinking about having kids in the next few years. I want 4 kids, and of course want to save up for them to go to college. I want to start a 529 for all of them as soon as their born and start contributing to it. Let’s say they’re all 2 years apart. 1) How much should I contribute monthly for each? 2) Should the contributions be distributed evenly or staggered, because of the differing ages? Sorry if this question is too complex.

A simple and often overlooked solution is US savings bonds. When used for educational expenses they can be tax free federally. I believe they are always tax free at the state level. I used this quite effectively.

re #1 Meghan, the Stafford loans are just fine. You can get income based repayment and the current rate is just 4.5%. Private student loans are much worse though and I’d avoid those.

I don’t think that paying down off mortgage should be a priority over college savings.

I certainly agree that your own retirement should take precedent over saving for your kids. Theres no reason that everyone should be paying 100% of their kids college. Kids can take loans and contribute their own money. You can’t get loans and scholarships to retire.

I’m with Konrad. We are treating our Roth IRAs as a college fund, since you can withdraw contributions (not earnings). This way the money is not tied up in a 529. Plus it seems like it would be better for financial aid, since they don’t count retirement funds in the formulas.

We arrived in the US 5 yrs ago from a Northern European country whose government pays for higher education. Aside from having to learn all about American 401k’s, mortgages, credit cards etc, we’ve also had college costs for our 3 children hanging over our heads. Our eldest just graduated from High School this summer, so we have had next to no time to save before the dreaded payments were upon us. Our kids have also had to play catch up in English in order to be eligible for the same opportunities as their peers. Our big question has been, how on earth are we going to give our kids the chance of college when we haven’t saved since they were born?

The best thing we have done is take advantage of the College in the High School program that our High School runs. It is linked to the local community college which provides credit on successful completion of a selection of college classes during Junior and Senior year. Our daughter left High School with 45 college credits, enough to skip her Freshman year! She had the whole HS experience and came away ahead in the college game too. She is now taking classes at the local community college and hopes to get her AA by June and transfer to a 4yr university. As we started way behind the rest of the field in this race, we’ve had to put status aside and find the best way to give our kids the education that they deserve. We are paying cash via a payment plan for community college, but our eldest will have to borrow and work a job to complete her BA.
In 2012 the second child will leave HS. Having seen her sister’s success, she’s also working hard to get as many credits as she can now, while 5 credits can be gained for $200. While we’re paying what we can for the eldest two, it will be impossible to save for the third, so we will probably still be in the same position in 2017 when he graduates. If we do get a chance to put something aside for him, I doubt it’ll be in a 529 because he’s #3. I don’t want our money that tied up when it comes to the last child.
We would have loved to have had the luxury of saving for college, but we didn’t so we’re getting through it as best we can. Our top priority is saving for retirement followed by keeping our kids as debt free as possible in college. Save while they’re young if you’ve met all your other obligations, but don’t lose hope if you can’t. There’s always more than one way of reaching a goal if you remember that the ultimate goal in this instance is for them to get a decent job and build a career.

I think it would be helpful to look at it from this standpoint: Your children would probably be a lot more content if they had to pay for their own eduction (or a larger percentage of it) and know that you were taken care of financially in retirement than the other way around.

Figuring out how you are going to afford the high costs of higher education can be an intimidating prospect for anyone. However, you should not be dissuaded from furthering your education because you think you will not be able to afford the expense. Instead, spend some time researching all of the financial aid or college grants you may qualify for; some of which may include federal school grants.

I sort of favor the model of “education for working adults”. Most 18 year olds want to experience various sorts of altered states, find out all about sex, and party until the next morning as often as possible. Is this the right time to decide your future and your career, with your hormones raging and your mind full of phlogiston? For most people, no. I know very few people who ended up working in their field of studies. I know people who changed majors every year. Took 6 years to graduate. Student loans for a trip to Europe. Sure, knowledge doesn’t hurt, but is that a good return on your investment?

Take, on the other hand, the Israeli model: at 18 kids go to the army, train for 2 or 3 years, sometimes even longer, they do all their drinking and sex parties while on leave, and when they get out of there they’re ready to get on with their studies and get a job. Israeli students get a bacherlor’s degree in 3 years, and the studies are highly specialized and geared towards a professional career in their field. You want to study law, you study law, not “liberal arts”.

As a graduate student in a “flagship” state university, I taught as a teaching assistant for four years (doing really the job of a professor), and I can attest that the great majority of students put a greater emphasis on perpetuating their adolescence than in developing professional skills. Sure, there are the bright ones, the ones who love to study, but their young brains are still full of silly and impractical ideals. Bless them. I hope they’re well.

Which brings me back to my original point… somehow I think that the 4 year college is becoming on path among many, not the only path towards higher education. Seems to me that academic training for working adults who have a real desire to put their knowledge to good and practical use has a much greater return on the investment.

Of course there are the purely academic careers which beget researchers and professors, and it’s hard to get into those fields without a bazillion years of studies, but those jobs are in the great minority in spite of the high level of matriculation. How many English professors come out of the trillions of English majors out there? How many history professors out of the millions of history students? Very very few, most are cannon fodder to keep the schools alive– even at the graduate level. In Europe, with their highly selective system, people are weeded out systematically and segregated according to their abilities– cruel, perhaps, but no crueler than the crushed expectations of humanities students in America. Support those who can be hired instead of extending student loans to everyone who asks for them.

Somehow I feel that a system of internships and apprenticeships before college would give kids a better chance to experience the professional world before they commit 4-5 years(or more!) of their lives, plus a small fortune which includes all that booze and drug money, to the pursuit of studies they may end up never using.

Kid: go and see the world, travel, join an army, get a job as a dishwasher, be poor and struggle, read books because you love them and not because someone tells you, drink beer on your own dime, avoid getting pregnant or getting someone pregnant, get a job in a factory, learn sales, learn to earn a paycheck, stay clear of hard drugs, start a business, live in a crummy apartment that you hate, and when you’re ready to really go after a career, we’ll talk…

In Australia, you don’t have to save up for college. The government just gives you the money for it…and when you earn over 40,000, a small percentage of your wage (about 3%) is subtracted from your pay untill your debt it paid off.

Most schools don’t include these assets at all in their financial aid calculations. A few elite private schools do, but they won’t expect you to dip into them as heavily as your cash savings accounts.

I’m laughing and crying at this. Having one child done with college, 1 in college, I can tell you that colleges demand to know exactly how much equity is in your house and how much is in your 401(k). It’s not a few elite colleges, it’s most colleges – any that use the CSS along with the FAFSA to calculate financial aid.

I’ve thought about creating a 529 plan for my children’s education but listing myself as the beneficiary. I would need to list the child as a beneficiary at some point but would wait until it was absolutely necessary. Depending on the account value, this could be during the final couple of years of my youngest child’s education.

Looking at the FAFSA rules, a parent can shelter $45K of investment money OUTSIDE OF RETIREMENT ACCOUNTS from being counted at all. Of course, by the time my kids are in college, 45K will cover a single semester’s worth of textbooks….

For Oregon residents, be sure to choose one of the two plans authorized by the Oregon 529 College Savings Board so that you can deduct your contributions from your income for purposes of calculating your Oregon income tax. If you choose another 529 you can’t take advantage of that deduction. While we are on the subject, there is really only one good choice among the two Oregon plans. The MFS Plan, which can only be purchased through financial advisors, is, in my opinion, not as attractive as the TIAA-CREF administered Oregon College Savings Plan. The MFS plan has much higher brokerage and commission fees.

Oregon’s plan went through some difficult times, but TIAA-CREF, the new plan administrator, offers some nice conservative funds and even some fixed income funds for the highly risk averse.

Great post and really like how you laid out the 529 plan, should make more parents think that they should start to plan for college from the very beginning before inflation catches up. What’s up with the student loan entrapment of big lenders now? If you can stay away from those, you could save a bundle funding your own college tuition with state grants e.t.c.

I don’t know how old you were when you were declared an independent far before 24, but at least in Texas, the only way you can be considered an independent before 24 is in SERIOUS extenuating circumstances.

I worked from the time I was 14 years old to buy school supplies and books and clothes, I had a full scholarship and a full time job in college, and I lived completely on my own. I didn’t qualify as an independent. I was told I had to be married, or my parents had to have been declared LEGALLY INSANE or I had to have proof that they beat me/severely abused me to the point of having a court legally separate us. I was in college from 2001-2005.

Recently, my friend had the same problem- she had been completely on her own since 18, and they told her the same thing- no way could she declare independent. To make matters worse, she was the apostate child of two devout Mormons, and they then refused to give her their tax information so she could fill out and turn in the FAFSA.

It is incredibly hard, if not downright impossible, to declare oneself independent before 24. I’m not sure what state you lived in, or when you were going to college, but in Texas it’s pretty much not going to happen.

So, I asked my financial advisor (hah) about my 529 plan fees, and she said:
“The 529 accounts each have an annual fee of $25.00. Internal management fees for the individual funds are 2.06%. The internal management fee comes off of the rate of return on the fund, so it is not a fee that you actually see. For example, if the fund earned 12.06% for the year, 2.06% is taken off for the management fee and you realize a 10% rate of return.”
Is the .2% to 2% and up THIS internal management fee? If so, can I switch my 529 somewhere ELSE that doesn’t charge so much or am I stuck? (And where! Where do I switch to?) She doesn’t seem to think this is high and has made zero suggestions to me regarding 401k allocations other than leaving them as is (when I asked about moving to index funds as I keep reading it’s the way to go… right?)

There’s more than one way to save for college. The difference with using a plan other than 529 is that it can be more flexible if your child ends up not attending college or they end up getting a scholarship, financial aid, grants, etc.

One other thing to remember is the rising cost of tuition and other college fees. Costs usually increase every year. If you save money based on current costs, you could find yourself short of funds by the time your kid attends college.

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